Morningstar DBRS, a global credit ratings agency that provides independent credit analysis and ratings across financial markets, has assessed the potential impact of Canada’s 2026 wildfire season on the country’s property and casualty (P&C) insurance sector.
The company said that while large wildfires in Northwestern Ontario have resulted in evacuation orders, transport disruption and widespread smoke-related air quality concerns across Canada and parts of the United States, current conditions are not expected to create a significant loss event for Canadian insurers.
According to Morningstar DBRS, Canada’s year-to-date burned area has reached approximately 2.95 million hectares, exceeding the 10-year average of around 2.55 million hectares. However, the company said insurers are entering the 2026 wildfire season in a stronger financial position than in recent years, supported by improved underwriting performance, stronger capital reserves and more favourable reinsurance conditions.
The effect of wildfire activity on the insurance sector will depend less on the total area burned and more on whether fires spread into major population centres or areas with high concentrations of insured homes, businesses and infrastructure.
The company said that although nearly 900 wildfires are currently active across Canada, the most significant fires during the 2026 season have largely been concentrated in remote areas of Northwestern Ontario and Northern Québec. Morningstar DBRS noted that these regions generally have lower population density, fewer insured properties and less commercial activity, reducing the likelihood of significant direct property and commercial insurance losses.
The company expects claims linked to evacuation orders, temporary accommodation costs and business interruption to remain manageable. Morningstar added that the insurance risk profile is different in provinces such as British Columbia and Alberta, where wildfire exposure has historically resulted in some of Canada’s largest insured losses because many communities contain substantial concentrations of property located in wildfire-prone areas.
Morningstar reported that wildfire activity has remained relatively limited in these higher-risk provinces so far in 2026. Approximately 43,000 hectares have burned in British Columbia and 18,000 hectares in Alberta, compared with 10-year year-to-date averages of roughly 373,000 hectares and 380,000 hectares respectively.
The company noted that many of Canada’s most expensive wildfire events over the past decade occurred in Alberta or British Columbia, including the Fort McMurray wildfire in 2016, the Jasper wildfire in 2024 and several major British Columbia wildfires between 2017 and 2023.
Morningstar said governments and insurers have continued to strengthen wildfire prevention measures in response to increasing losses in recent years. Following the severe 2023 wildfire season, the federal government expanded pre-loss mitigation efforts through the FireSmart programme, supporting vegetation management, property protection and wildfire preparedness.
The company noted that in 2025, Canadian federal and provincial governments, together with the Canadian Interagency Forest Fire Centre (CIFFC), announced approximately $104 million in combined investment to expand FireSmart initiatives and support community-based wildfire mitigation.
Morningstar said insurers are also contributing by encouraging FireSmart practices and investing in property-level measures designed to reduce potential losses. The company said:
However, Morningstar highlighted that Canada still does not have a dedicated public-private insurance backstop for extreme wildfire losses. The company said that, unlike some high-risk jurisdictions in the United States and Europe, Canada’s insurance market continues to rely primarily on private-sector solutions to manage wildfire-related claims.
The company said discussions have progressed during 2026 around federally supported catastrophe reinsurance, although the current focus has been on earthquake risk rather than wildfire exposure. As a result, wildfire losses continue to be absorbed mainly through private insurance arrangements available to Canadian policyholders.
Morningstar said Canadian P&C insurers are entering the current wildfire season from a position of financial strength despite the continued increase in catastrophe-related losses over the past decade.
The company identified adequate pricing, disciplined underwriting and strong capitalisation as important factors supporting insurers’ ability to manage potential wildfire claims. Morningstar noted several years of personal property premium increases have helped insurers respond to rising repair costs, inflation and greater catastrophe frequency.
The company added that financial results from major publicly traded Canadian P&C insurers during 2025 and the first quarter of 2026 demonstrated continued underwriting discipline, with combined ratios below 95%. Morningstar said strong earnings have allowed insurers to increase capital buffers and improve their ability to absorb catastrophe-related losses.
The company also said reinsurance market conditions have improved, with increased global capacity and availability contributing to lower reinsurance pricing in 2026. Morningstar stated that this has provided insurers with greater flexibility to manage earnings volatility and improve their reinsurance arrangements.
While commercial insurers continue to experience competitive pressures, Morningstar DBRS does not expect the current wildfire season to result in significant commercial insurance claims.
Looking ahead, Morningstar said Canadian insurers appear well positioned to absorb moderate wildfire losses due to their strong financial resources and capital positions. The company said a major industry-wide loss remains unlikely unless fires reach significant population centres or several severe events occur within a short period.
The current wildfires in Northwestern Ontario are unlikely to spread directly into Southern Ontario, but changing weather conditions could increase the risk of new fires developing closer to populated areas and creating higher insurance losses.
The company warned that a more severe scenario involving multiple major wildfires across several provinces at the same time could place greater pressure on insurers’ catastrophe budgets, trigger reinsurance coverage and increase reinstatement costs.
“Canadian insurers remain well positioned to absorb moderate wildfire losses, given the current development of the wildfire season,” added Steve Liu, Assistant Vice President, Global Insurance & Pension Ratings. “A more severe accumulation of major wildfire and other severe weather-related losses would likely be required to exhaust insurers’ annual catastrophe budgets, trigger reinsurance protection, and increase reinsurance reinstatement costs.”
